The Income Gap Between Leaders and Led

This blog is in three parts. Parts I and II are below. They are titled, respectively, The Ideal and The Deal. Part III, which will appear in this space next week, is titled The Real.

The Ideal Smart leaders set themselves apart. They are not, nor do they pretend to be, like the led. Rather they are deliberately different, the nature of the difference depending on the circumstance.

In turn, we, the led, want them to be other than us, elevated in some fashion, a primitive reminder perhaps that our fate is in their hands. In fact we downright dislike leaders playing the part of populist – say President Jimmy Carter’s misguided decision to eliminate many of the trappings of the presidential office. His one term presidency was hardly helped by his cutting way down on pomp and circumstance, by his sending nine-year old daughter Amy to a nearby public school, or by his wearing a cardigan sweater rather than the previously obligatory jacket and tie when addressing the American people.

But, ideally, there are limits to the distance. That is, while leaders are expected to be different from you and me, they are not expected or supposed to be very different from you and me. In fact, the more important the group membership, the more important the leader’s capacity to connect to followers by being somehow like them. Hillary Clinton understood this when she bellied up to the bar in Pennsylvania – as did Barack Obama when (to his regret!) he tried his hand at bowling. The most extreme example of this balance between leaders being different from their followers, and simultaneously similar to them, is in battle. As Thomas Kolditz has pointed out, in high stakes situations leaders gain trust by demonstrating that risk and reward are fairly distributed among all members of the group, them included.

The Deal In corporate America the implicit contract between leaders and followers has been severed. The optimum distance between them has become a yawning gap.

In 2007 chief executive officers earned on average 180 times more than their subordinates. This is more than double the multiple of fifteen years ago. To be clear, total direct compensation – salary, bonuses, restricted shares, stock options and other annual and long-term incentives – rose only a relatively modest 3.5 % from a year earlier. But the extreme pay gains for CEOs in the last couple of decades, and the now deep economic divide between them and others in their organization is in violation of everything we know, or think we know, about good leadership.

The first chief executive officer to pull in more than a million a year was Revlon’s Michel Bergerac, in 1974. Here are three in the top tier in 2007:

You might reasonably assume that the highest paid chiefs deserved their big bucks, at least earned them on the basis of stellar performance. Well, you would assume right, but only in some cases. For example, Oracle’s Lawrence Ellison, Procter & Gamble’s A. G. Lafley, and Goldman Sachs’s Lloyd Blankenfein all raked in very big bucks, and all head companies that had a strong year. However in other cases you would assume wrong. In other cases those holding top jobs get paid top dollar in spite of their poor performance.

Still, even when CEOs deserve to be well-rewarded, the gap in pay between them and their subordinates is usually so large as to preclude any kind of relationship between them. To label great grossing CEOs “leaders” is, then, a mistake – it’s a misnomer. Rather they are high-end executives who perform tasks in which they can go months on end without giving much if any thought to those who are beneath them, especially far beneath them, on the corporate ladder.

Stay tuned for Part III, The Real, coming up next week.

Barbara Kellerman is the James MacGregor Burns Lecturer in Public Leadership at Harvard University’s John F. Kennedy School of Government, and is author and editor of many books and articles on leadership.

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